Leonardo DRS Inc

Previous wording

Our overall strategy is to be a balanced and diversified company, less vulnerable to any one budgetary platform or service decision with a specific focus on establishing strong technical and market positions in areas of priority for the DoD. The DoD is our largest customer and, for the six months ended June 30, 2024, accounted for approximately 82% of our business as an end-user, with revenues principally derived directly or indirectly from contracts with the U.S. Navy and U.S. Army, which represented 39% and 30%, respectively, of our total revenues for such period, which is consistent with historic trends.

Current wording

Our overall strategy is to be a balanced and diversified company, less vulnerable to any one budgetary platform or service decision with a specific focus on establishing strong technical and market positions in areas of priority for the DoD. The DoD is our largest customer and, for the nine months ended September 30, 2024, accounted for approximately 81% of our business as an end-user, with revenues principally derived directly or indirectly from contracts with the U.S. Navy and U.S. Army, which represented 37% and 32%, respectively, of our total revenues for such period, which is consistent with historic trends.

Previous wording

Our sensing capabilities span numerous applications, including missions requiring advanced detection, precision targeting and surveillance sensing, long range electro-optic/infrared (“EO/IR”), signals intelligence (“SIGINT”) and other intelligence systems, electronic warfare (“EW”), ground vehicle sensing, next generation active electronically scanned array tactical radars, dismounted soldier sensing and space sensing. Across our offerings, we are focused on advancing sensor distance and enhancing the precision, clarity, definition, spectral depth and effectiveness of our sensors. We also seek to leverage the knowledge and expertise built through our decades of experience to optimize size, weight, power and cost for our customers’ specific mission requirements.

Current wording

Our sensing capabilities span numerous applications, including missions requiring advanced passive and active detection, precision targeting and surveillance sensing, long range electro-optic/infrared (“EO/IR”), signals intelligence (“SIGINT”) and other intelligence systems, electronic warfare (“EW”), ground vehicle sensing, next generation active electronically scanned array tactical radars, dismounted soldier sensing and space sensing. Across our offerings, we are focused on advancing sensor distance and enhancing the precision, clarity, definition, spectral depth and effectiveness of our sensors. We also seek to leverage the knowledge and expertise built through our decades of experience to optimize size, weight, power and cost for our customers’ specific mission requirements.

Previous wording

The ongoing conflicts in Israel and the broader Middle East region have the potential to evolve quickly creating uncertainty, along with the potential for disruptions to our Israeli operations in the region, including, but not limited to, workforce calls for duty, transportation and other logistical impacts and reduced customer confidence. To date, the conflict has not had a material impact to our operations. The U.S. and other western powers have directed military and funding support to Israel. DRS has direct exposure to Israel principally through its RADA Technologies Ltd (“RADA”) operations with approximately 4% of our workforce as of June 30, 2024 residing in Israel.

Current wording

The ongoing conflicts in Israel and the broader Middle East region have the potential to evolve quickly creating uncertainty, along with the potential for disruptions to our Israeli operations in the region, including, but not limited to, workforce calls for duty, transportation and other logistical impacts and reduced customer confidence. To date, the conflict has not had a material impact to our operations. The U.S. and other western powers have directed military and funding support to Israel. DRS has direct exposure to Israel principally through its RADA Technologies Ltd (“RADA”) operations with approximately 5% of our workforce as of September 30, 2024 residing in Israel.

Previous wording

Revenues derived directly, as a prime contractor, or indirectly, as a subcontractor, from contracts with the U.S. government represented 82% and 81% of our total revenues for the six months ended June 30, 2024 and June 30, 2023, respectively. Our U.S. government sales are highly concentrated within our DoD customers, which made up the overwhelming majority of our U.S. government revenue for the six months ended June 30, 2024, and are principally derived directly or indirectly from contracts with the U.S. Navy and U.S. Army, which represented 39% and 30%, respectively, of our total revenues for the six months ended June 30, 2024. Therefore, our revenue is highly correlated to changes in U.S. government spending levels, especially within the DoD.

Current wording

Revenues derived directly, as a prime contractor, or indirectly, as a subcontractor, from contracts with the U.S. government represented 81% and 80% of our total revenues for the nine months ended September 30, 2024 and 2023, respectively. Our U.S. government sales are highly concentrated within our DoD customers, which made up the overwhelming majority of our U.S. government revenue for the nine months ended September 30, 2024, and are principally derived directly or indirectly from contracts with the U.S. Navy and U.S. Army, which represented 37% and 32%, respectively, of our total revenues for the nine months ended September 30, 2024. Therefore, our revenue is highly correlated to changes in U.S. government spending levels, especially within the DoD.

Previous wording

The DoD budget is the largest defense budget in the world. The fiscal year (“FY”) 2024 National Defense Authorization Act (“NDAA”) was passed by Congress late in 2023 and signed into law by the President in December 2023. The NDAA authorizes $842 billion in defense spending, including increases in procurement, research, development, testing and engineering, as well as military assistance to Ukraine. In March 2024, the U.S. President’s FY 2025 budget request was released and included $850 billion for national defense programs, which marks a 1% increase over prior year levels. In April 2024, Congress passed and the President signed into law a national security supplemental package that provides for $95 billion in foreign aid for Ukraine, Israel, and the Indo-Pacific, which also includes over $3 billion of funding to support the submarine industrial base.

Current wording

The DoD budget is the largest defense budget in the world. In March 2024, the U.S. President’s fiscal year (“FY”) 2025 budget request was released and included $850 billion for national defense programs, which marks a 1% increase over prior year levels. In April 2024, Congress passed and the President signed into law a national security supplemental package that provides for $95 billion in foreign aid for Ukraine, Israel, and the Indo-Pacific, which also includes over $3 billion of funding to support the submarine industrial base.

Previous wording

Under U.S. GAAP, contract costs, including allowable general and administrative expenses on certain government contracts, are charged to work in progress inventory and are written off to costs and expenses as revenues are recognized. The Federal Acquisition Regulations (“FAR”) and the defense supplement (“DFARS”), incorporated by reference in U.S. government contracts, provide that internal research and development costs are allowable general and administrative expenses. Unallowable costs, pursuant to the FAR, are excluded from costs accumulated on U.S. government contracts.

Current wording

Under U.S. GAAP, contract costs, including allowable general and administrative expenses on certain government contracts, are charged to work in progress inventory and are written off to costs and expenses as revenues are recognized. The Federal Acquisition Regulation (“FAR”) and the Defense Federal Acquisition Regulation Supplement (“DFARS”), incorporated by reference in U.S. government contracts, provide that internal research and development costs are allowable general and administrative expenses. Unallowable costs, pursuant to the FAR, are excluded from costs accumulated on U.S. government contracts.

Previous wording

Revenue consists primarily of product related revenue, which represented 94% of our total revenues for the six months ended June 30, 2024. Our remaining revenue was generated from service related contracts. Additionally, 82% of our revenue was derived from firm-fixed price contracts for the six months ended June 30, 2024. This was consistent with the prior year comparable period which realized product related revenue of 93% and revenue from firm-fixed price contracts of 83% for the six months ended June 30, 2023.

Current wording

Revenue consists primarily of product related revenue, which represented 94% of our total revenues for the nine months ended September 30, 2024. Our remaining revenue was generated from service related contracts. Additionally, 83% of our revenue was derived from firm-fixed price contracts for the nine months ended September 30, 2024. This was consistent with the prior year comparable period which realized product related revenue of 93% and revenue from firm-fixed price contracts of 84% for the nine months ended September 30, 2023.

Previous wording

Under flexibly priced contracts, we are reimbursed for allowable or otherwise defined total costs (defined as cost of revenues plus allowable general and administrative expenses) incurred, plus a fee. The contracts may also include incentives for various performance criteria, including quality, timeliness, cost-effectiveness or other factors. For the six months ended June 30, 2024 and June 30, 2023, flexibly priced contracts represented 18% and 17% of our total revenues, respectively.

Current wording

Under flexibly priced contracts, we are reimbursed for allowable or otherwise defined total costs (defined as cost of revenues plus allowable general and administrative expenses) incurred, plus a fee. The contracts may also include incentives for various performance criteria, including quality, timeliness, cost-effectiveness or other factors. For the nine months ended September 30, 2024 and 2023, flexibly priced contracts represented 17% and 16% of our total revenues, respectively.

Previous wording

The following discussion of operating results is intended to help the reader understand the results of operations and financial condition of the Company, for the three and six months ended June 30, 2024, as compared to the three and six months ended June 30, 2023. Given the nature of our business, we believe revenue and operating earnings are most relevant to an understanding of our performance at an enterprise and segment level. Our operating cycle is longer term in nature and involves various types of production contracts and varying delivery schedules. Accordingly, operating results in a particular period may not be indicative of future operating results.

Current wording

The following discussion of operating results is intended to help the reader understand the results of operations and financial condition of the Company, for the three and nine months ended September 30, 2024, as compared to the three and nine months ended September 30, 2023. Given the nature of our business, we believe revenue and operating earnings are most relevant to an understanding of our performance at an enterprise and segment level. Our operating cycle is longer term in nature and involves various types of production contracts and varying delivery schedules. Accordingly, operating results in a particular period may not be indicative of future operating results.

Previous wording

Our revenue generation of $753 million for the three months ended June 30, 2024 represents an increase of $125 million, or 19.9%, as compared to the three months ended June 30, 2023. The revenue increase is primarily attributed to our continued backlog growth across each of our operating segments. This is highlighted by our efforts in dismounted and ground vehicle sensing, tactical radars and electric power and propulsion.

Current wording

Our revenue generation of $812 million for the three months ended September 30, 2024 represents an increase of $109 million, or 15.5%, as compared to the three months ended September 30, 2023. The revenue increase is primarily attributed to our continued backlog growth across each of our operating segments. This is highlighted by our efforts within advanced sensing, force protection and weapon system support activities.

Previous wording

Our revenue generation of $1,441 million for the six months ended June 30, 2024 represents an increase of $244 million, or 20.4%, as compared to the six months ended June 30, 2023. The revenue increase for the six months ended June 30, 2024 is consistent with the three months ended June 30, 2023, driven by our continued backlog growth across each of our operating segments, highlighted by our efforts in dismounted and ground vehicle sensing, tactical radars and electric power and propulsion.

Current wording

Our revenue generation of $2,253 million for the nine months ended September 30, 2024 represents an increase of $353 million, or 18.6%, as compared to the nine months ended September 30, 2023. The revenue increase for the nine months ended September 30, 2024 is consistent with the three months ended September 30, 2024, driven by our continued backlog growth across each of our operating segments, highlighted by our efforts in each of our key market areas including advanced sensing, electric power and propulsion, force protection and network computing.

Previous wording

Cost of revenues increased by $101 million, or 20.9%, from $483 million to $584 million for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023. The cost of revenues increase was primarily due to the increased revenue contribution realized during the period.

Current wording

Cost of revenues increased by $92 million, or 17.0%, from $541 million to $633 million for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023. The cost of revenues increase was primarily due to the increased revenue contribution realized during the period.

Previous wording

Cost of revenues increased by $198 million, or 21.5%, from $921 million to $1,119 million for the six months ended June 30, 2024 as compared to the six months ended June 30, 2023. The cost of revenues increase was primarily due to the increased revenue contribution realized during the period.

Current wording

Cost of revenues increased by $290 million, or 19.8%, from $1,462 million to $1,752 million for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023. The cost of revenues increase was primarily due to the increased revenue contribution realized during the period.

Previous wording

Gross profit increased by $24 million, or 16.6%, to $169 million for the three months ended June 30, 2024, as compared to $145 million for the three months ended June 30, 2023 and gross profit increased by $46 million, or 16.7%, to $322 million for the six months ended June 30, 2024 as compared to $276 million for the six months ended June 30, 2023, resulting from the revenue and cost of revenues trends noted above.

Current wording

Gross profit increased by $17 million, or 10.5%, to $179 million for the three months ended September 30, 2024, as compared to $162 million for the three months ended September 30, 2023 and gross profit increased by $63 million, or 14.4%, to $501 million for the nine months ended September 30, 2024 as compared to $438 million for the nine months ended September 30, 2023, resulting from the revenue and cost of revenues trends noted above.

Previous wording

General and administrative (“G&A”) expenses increased by $17 million, or 18.9%, for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023 and increased by $18 million, or 9.5%, for the six months ended June 30, 2024 as compared to the six months ended June 30, 2023. The increase was primarily due to the reversal of a legal liability accrual during the prior year period.

Current wording

General and administrative (“G&A”) expenses increased by $2 million, or 2.1%, for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023. G&A increased by $20 million, or 7.0%, for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023, primarily due to the reversal of a legal liability accrual during the prior year period.

Previous wording

Other operating expenses were $1 million for the three months ended June 30, 2024 compared to $8 million for the three months ended June 30, 2023. Other operating expenses were $5 million for the six months ended June 30, 2024 compared to $8 million for the six months ended June 30, 2023. The expense in both periods is attributed to restructuring efforts implemented in our ASC segment.

Current wording

There were no other operating expenses for the three months ended September 30, 2024 compared to $2 million for the three months ended September 30, 2023. Other operating expenses were $5 million for the nine months ended September 30, 2024 compared to $10 million for the nine months ended September 30, 2023. The expense in both periods is attributed to restructuring efforts implemented in our ASC segment.

Previous wording

Operating earnings increased by $13 million to $55 million for the three months ended June 30, 2024. Operating earnings increased by $31 million to $98 million for the six months ended June 30, 2024. The increase was driven by the gross profit impacts noted above.

Current wording

Operating earnings increased by $16 million to $75 million for the three months ended September 30, 2024. Operating earnings increased by $47 million to $173 million for the nine months ended September 30, 2024. The increase was driven by the gross profit impacts noted above.

Previous wording

Interest expense decreased by $2 million to $7 million for the three months ended June 30, 2024, as compared to $9 million for the three months ended June 30, 2023. Interest expense decreased by $5 million to $12 million for the six months ended June 30, 2024, as compared to $17 million for the six months ended June 30, 2023. The reduction in interest expenditures is attributed to reduced borrowings on our credit facilities during the current year periods.

Current wording

Interest expense decreased by $5 million to $5 million for the three months ended September 30, 2024, as compared to $10 million for the three months ended September 30, 2023. Interest expense decreased by $10 million to $17 million for the nine months ended September 30, 2024, as compared to $27 million for the nine months ended September 30, 2023. The reduction in interest expense is attributed to reduced borrowings on our credit facilities during the current year periods.

Previous wording

Other, net remained relatively consistent for the three and six months ended June 30, 2024 and June 30, 2023.

Current wording

Other, net remained relatively consistent for the three and nine months ended September 30, 2024 and 2023.

Previous wording

Earnings before taxes increased by $14 million to $47 million for the three months ended June 30, 2024 from $33 million for the three months ended June 30, 2023 and increased by $35 million to $84 million for the six months ended June 30, 2024 from $49 million for the six months ended June 30, 2023. This was primarily due to the increases in operating earnings and decreased interest expense as noted above.

Current wording

Earnings before taxes increased by $21 million to $69 million for the three months ended September 30, 2024 from $48 million for the three months ended September 30, 2023 and increased by $56 million to $153 million for the nine months ended September 30, 2024 from $97 million for the nine months ended September 30, 2023. This was primarily due to the increases in operating earnings and decreased interest expense as noted above.

Previous wording

Income tax provision (benefit) increased by $11 million to $9 million (provision) for the three months ended June 30, 2024, from $2 million (benefit) for the three months ended June 30, 2023. Income tax provision increased by $15 million to $17 million for the six months ended June 30, 2024, from $2 million for the six months ended June 30, 2023. This was primarily attributable to the recognition of a discrete tax benefit associated with historic research and development credits recorded during the six months ended June 30, 2023. Our effective tax rate was 19.1% and 20.2% for the three and six months ended June 30, 2024, respectively, compared to (6.1)% and 4.1% for the three and six months ended June 30, 2023, respectively.

Current wording

Income tax provision increased by $11 million to $12 million for the three months ended September 30, 2024, from $1 million for the three months ended September 30, 2023. Income tax provision increased by $26 million to $29 million for the nine months ended September 30, 2024, from $3 million for the nine months ended September 30, 2023. This increase was attributed to an increase in earnings before taxes noted above, coupled with the recognition of a discrete tax benefit associated with historic research and development credits recorded during the three and nine months ended September 30, 2023. Our effective tax rate was 17.4% and 19.0% for the three and nine months ended September 30, 2024, respectively, compared to 2.1% and 3.1% for the three and nine months ended September 30, 2023, respectively.

Previous wording

Net earnings increased by $3 million to $38 million for the three months ended June 30, 2024, when compared to the three months ended June 30, 2023. Net earnings increased by $20 million to $67 million for the six months ended June 30, 2024, when compared to the six months ended June 30, 2023. This was driven by an increase in earnings before taxes offset by the income tax provision increase as noted above.

Current wording

Net earnings increased by $10 million to $57 million for the three months ended September 30, 2024, when compared to the three months ended September 30, 2023. Net earnings increased by $30 million to $124 million for the nine months ended September 30, 2024, when compared to the nine months ended September 30, 2023. This was driven by an increase in earnings before taxes offset by the income tax provision increase as noted above.

Previous wording

Total backlog increased by $3,568 million to $7,925 million as of June 30, 2024, from $4,357 million as of June 30, 2023. The backlog increase was driven primarily by the receipt of a multi-boat contract to support the electric propulsion efforts on the Columbia Class submarine program with the U.S. Navy.

Current wording

Total backlog increased by $3,545 million to $8,264 million as of September 30, 2024, from $4,719 million as of September 30, 2023. The backlog increase was driven primarily by the receipt of a multi-boat contract to support the electric propulsion efforts on the Columbia Class submarine program with the U.S. Navy.

Previous wording

Bookings for the three months ended June 30, 2024 increased to $941 million as compared to $698 million for the three months ended June 30, 2023. Bookings for the six months ended June 30, 2024 increased to $1,756 million as compared to $1,447 million for the six months ended June 30, 2023.

Current wording

Bookings for the three months ended September 30, 2024 decreased to $1,051 million as compared to $1,055 million for the three months ended September 30, 2023. Bookings for the nine months ended September 30, 2024 increased to $2,807 million as compared to $2,502 million for the nine months ended September 30, 2023.

Previous wording

Adjusted EBITDA increased by $20 million, or 32.3%, to $82 million for the three months ended June 30, 2024 compared to the three months ended June 30, 2023. The increase in adjusted EBITDA for the quarter is primarily attributed to increased revenue volume and related gross profit contribution. This increase realized better absorption of our G&A expenditures driving an increase in adjusted EBITDA. For the six months ended June 30, 2024, adjusted EBITDA increased by $41 million, or 36.9%, to $152 million from $111 million for the six months ended June 30, 2023.

Current wording

Adjusted EBITDA increased by $18 million, or 22.0%, to $100 million for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023. The increase in adjusted EBITDA for the quarter is primarily attributed to increased revenue volume and related gross profit contribution. This increase realized better absorption of our G&A expenditures driving an increase in adjusted EBITDA. For the nine months ended September 30, 2024, adjusted EBITDA increased by $59 million, or 30.6%, to $252 million from $193 million for the nine months ended September 30, 2023.

Previous wording

Adjusted EBITDA margin was 10.9% and 10.5% for the three and six months ended June 30, 2024, respectively, and 9.9% and 9.3% for the three and six months ended June 30, 2023, respectively. The increase for the quarter was primarily due to operational leverage realized on the 19.9% increase in revenue during the three months ended June 30, 2024 as compared to the three months ended June 30, 2023.

Current wording

Adjusted EBITDA margin was 12.3% and 11.2% for the three and nine months ended September 30, 2024, respectively, and 11.7% and 10.2% for the three and nine months ended September 30, 2023, respectively. The increase for the quarter was primarily due to operational leverage realized on the 15.5% increase in revenue during the three months ended September 30, 2024 as compared to the three months ended September 30, 2023.

Previous wording

Diluted weighted average number of shares outstanding for the three and six months ended June 30, 2024 was 267 million and 267 million, respectively, an increase of 3 million and 4 million shares as compared to the three and six months ended June 30, 2023, respectively. The increased share count is attributed to stock option exercises and equity vesting. Adjusted diluted EPS of $0.18 and $0.32 for the three and six months ended June 30, 2024 increased $0.03 and $0.10, respectively, as compared with the same periods in the prior year. The increase is a product of the increased adjusted net earnings as shown in the table above, partially offset by the increased share count.

Current wording

Diluted weighted average number of shares outstanding for the three and nine months ended September 30, 2024 was 268 million and 267 million, respectively, an increase of 3 million and 3 million shares as compared to the three and nine months ended September 30, 2023, respectively. The increased share count is attributed to stock option exercises and equity vesting. Adjusted diluted EPS of $0.24 and $0.56 for the three and nine months ended September 30, 2024 increased $0.04 and $0.14, respectively, as compared to the same periods in the prior year. The increase is a product of the increased adjusted net earnings as shown in the table above, partially offset by the increased share count.

Previous wording

Free cash flow usage decreased by $82 million to $274 million for the six months ended June 30, 2024 from $356 million for the six months ended June 30, 2023. This was primarily due to lower cash used to fund working capital for the six months ended June 30, 2024 when compared to the six months ended June 30, 2023.

Current wording

Free cash flow usage decreased by $109 million to $226 million for the nine months ended September 30, 2024 from $335 million for the nine months ended September 30, 2023. This was primarily due to lower cash used to fund working capital for the nine months ended September 30, 2024 when compared to the nine months ended September 30, 2023.

Previous wording

There is also uncertainty around the timing, extent, nature and effect of Congressional and other U.S. government actions to address budgetary constraints, caps on the discretionary budget for defense and non-defense departments and agencies, and the ability of Congress to determine how to allocate the available budget authority and pass appropriations bills to fund both U.S. government departments and agencies that are, and those that are not, subject to the caps. Additionally, budget deficits and the growing U.S. national debt, may increase pressure on the U.S. government to reduce federal spending across all federal agencies, with uncertainty about the size and timing of those reductions. Furthermore, delays in the completion of future U.S. government budgets could in the future delay procurement of the federal government services we provide. A reduction in the amount of, or reductions, delays, or cancellations of funding for, services that we are contracted to provide to the U.S. government as a result of any of these impacts or related initiatives, legislation or otherwise could have a material adverse effect on our business and results of operations. See Part I, Item 1A, “Risk Factors—Risks Related to Our Business—Significant delays or reductions in appropriations for our programs and changes in U.S. government priorities and spending levels more broadly may negatively impact our business and could have a material adverse impact on our business, financial condition and results of operations” and Part II, Item 7,“Management’s Discussion and Analysis of Financial Condition and Results of Operations—Business Overview and Considerations—Business Environment” in our Annual Report on Form 10-K for the year ended December 31, 2023, and Part I, Item 2,“Management’s Discussion and Analysis of Financial Condition and Results of Operations—Business Overview and Considerations—Business Environment” in this Quarterly Report for further details on U.S. government spending’s impact on our business.

Current wording

There is also uncertainty around the timing, extent, nature and effect of Congressional and other U.S. government actions to address budgetary constraints, caps on the discretionary budget for defense and non-defense departments and agencies, and the ability of Congress to determine how to allocate the available budget authority and pass appropriations bills to fund both U.S. government departments and agencies that are, and those that are not, subject to the caps. Additionally, budget deficits and the growing U.S. national debt, may increase pressure on the U.S. government to reduce federal spending across all federal agencies, with uncertainty about the size and timing of those reductions. Furthermore, delays in the completion of future U.S. government budgets could in the future delay procurement of the federal government services we provide. A reduction in the amount of, or reductions, delays, or cancellations of funding for, services that we are contracted to provide to the U.S. government as a result of any of these impacts or related initiatives, legislation or otherwise could have a material adverse effect on our business and results of operations. See Part I, Item 1A, “Risk Factors—Risks Related to Our Business—Significant delays or reductions in appropriations for our programs and changes in U.S. government priorities and spending levels more broadly may negatively impact our business and could have a material adverse impact on our business, financial condition and results of operations” and Part II, Item 7,“Management’s Discussion and Analysis of Financial Condition and Results of Operations—Business Overview and Considerations—Business Environment” in our Annual Report on Form 10-K for the year ended December 31, 2023, and Part I, Item 2,“Management’s Discussion and Analysis of Financial Condition and Results of Operations—Business Overview and Considerations—Business

Previous wording

After establishing the estimated total cost at completion, we follow a standard Estimate at Completion (“EAC”) process in which we review the progress and performance on our ongoing contracts. The following represents the net impact that changes in our estimates, particularly those regarding our fixed-price development programs, have had on our revenues for the three and six months ended June 30, 2024 and 2023, respectively:

Current wording

After establishing the estimated total cost at completion, we follow a standard Estimate at Completion (“EAC”) process in which we review the progress and performance on our ongoing contracts. The following represents the net impact that changes in our estimates, particularly those regarding our fixed- price development programs, have had on our revenues for the three and nine months ended September 30, 2024 and 2023, respectively:

Previous wording

International revenue, including foreign military sales, foreign military financing, and direct commercial sales, accounted for approximately 13% and 10% of our revenue for the six months ended June 30, 2024 and June 30, 2023, respectively. The increase is due in part to incremental demand resulting from higher defense spending within Eastern Europe, compounded by continued military aid programs in support of Ukraine in its conflict with Russia. These efforts are highlighted by demand for our battle management, tactical radars and C-UAS products. Since our focus is primarily with the DoD and our investments are focused as such, we anticipate that international sales will continue to account for a similar percentage of revenue in the future. We remain subject to the spending levels, pace and priorities of the U.S. government as well as international governments and commercial customers, and to general economic conditions that could adversely affect us, our customers and our suppliers.

Current wording

International revenue, including foreign military sales, foreign military financing, and direct commercial sales, accounted for approximately 13% and 9% of our revenue for the nine months ended September 30, 2024 and 2023, respectively. The increase is due in part to incremental demand resulting from higher defense spending within Eastern Europe, compounded by continued military aid programs in support of Ukraine in its conflict with Russia. These efforts are highlighted by demand for our battle management, tactical radars and C-UAS products. Since our focus is primarily with the DoD and our investments are focused as such, we anticipate that international sales will continue to account for a similar percentage of revenue in the future. We remain subject to the spending levels, pace and priorities of the U.S. government as well as international governments and commercial customers, and to general economic conditions that could adversely affect us, our customers and our suppliers.

Previous wording

Additionally, some international sales may expose us to foreign exchange fluctuations and changing dynamics of foreign competitiveness based on variations in the value of the U.S. dollar relative to other currencies. The impact of those fluctuations is reflected throughout our Consolidated Financial Statements, but in the aggregate, did not have a material impact on our results of operations for six months ended June 30, 2024.

Current wording

Additionally, some international sales may expose us to foreign exchange fluctuations and changing dynamics of foreign competitiveness based on variations in the value of the U.S. dollar relative to other currencies. The impact of those fluctuations is reflected throughout our Consolidated Financial Statements, but in the aggregate, did not have a material impact on our results of operations for the nine months ended September 30, 2024.

Previous wording

The ASC segment reported revenue of $492 million and $925 million for the three and six months ended June 30, 2024, an increase of 21.8%, or $88 million, from the three months ended June 30, 2023 and 16.4%, or $130 million, from the six months ended June 30, 2023. The revenue increase is attributed to both our advanced sensing and network computing programs. Within our advanced sensing portfolio, revenue growth is highlighted by our ground vehicle, tactical radar and dismounted soldier sensing programs. This was offset in part by the timing of infrared counter measure program revenue realized in the period. Within our network computing programs, our revenue expansion was driven by strong performance from our naval computing solutions.

Current wording

The ASC segment reported revenue of $533 million and $1,458 million for the three and nine months ended September 30, 2024, respectively, an increase of 23.7%, or $102 million, from the three months ended September 30, 2023 and 18.9%, or $232 million, from the nine months ended September 30, 2023. The revenue increase is attributed to both our advanced sensing and force protection programs. Within our advanced sensing portfolio, revenue growth is highlighted by our ground vehicle and dismounted soldier sensing programs while our force protection programs were enhanced by our tactical radar portfolio. This was offset in part by a reduction in airborne sensing revenue realized in the period.

Previous wording

ASC’s adjusted EBITDA increased by $19 million, or 52.8%, from $36 million for the three months ended June 30, 2023 to $55 million for the three months ended June 30, 2024. The increase was driven by increased revenue contribution offset slightly by an increase in G&A expenditures. This drove adjusted EBITDA margin up 230 bps to 11.2% compared to the 8.9% realized during the three months ended June 30, 2023.

Current wording

ASC’s adjusted EBITDA increased by $16 million, or 33.3%, from $48 million for the three months ended September 30, 2023 to $64 million for the three months ended September 30, 2024. The increase was driven by increased revenue contribution offset slightly by an increase in G&A expenditures. This drove adjusted EBITDA margin up 90 bps to 12.0% compared to the 11.1% realized during the three months ended September 30, 2023.

Previous wording

For the six months ended June 30, 2024, adjusted EBITDA increased by $23 million, or 31.5%, from $73 million for the six months ended June 30, 2023 to $96 million for the six months ended June 30, 2024. The increase was driven by increased revenue contribution offset slightly by an increase in G&A expenditures. This drove adjusted EBITDA margin up 120 bps to 10.4% compared to the 9.2% realized during the six month period ended June 30, 2023.

Current wording

For the nine months ended September 30, 2024, adjusted EBITDA increased by $39 million, or 32.2%, from $121 million for the nine months ended September 30, 2023 to $160 million for the nine months ended September 30, 2024. The increase was driven by increased revenue contribution offset slightly by an increase in G&A expenditures. This drove adjusted EBITDA margin up 110 bps to 11.0% compared to the 9.9% realized during the nine month period ended September 30, 2023.

Previous wording

Advanced sensing results were highlighted by demand for our dismounted soldier solutions, coupled with continued demand for airborne force protection programs. Bookings continue to exceed the revenue output driving an increase in backlog over the period.

Current wording

The ASC segment generated a $135 million, or 16.5%, decrease in bookings for the three months ended September 30, 2024 when compared to the three months ended September 30, 2023. The decrease in new awards is largely attributed to accelerated awards realized during the year, which pulled our new awards to earlier in the year. The decline in the current quarter is also attributed to our dismounted soldier sensing programs which received incremental funding in the third quarter of 2023 compared to the award receipt in the second quarter of 2024. Bookings continue to exceed the revenue output driving an increase in backlog over the period.

Previous wording

IMS segment revenue increased by $40 million, or 17.7%, to $266 million for the three months ended June 30, 2024 from $226 million for the three months ended June 30, 2023, attributed to continued progress in our naval power and propulsion submarine programs as we execute our existing backlog, highlighted by the Columbia Class efforts.

Current wording

IMS segment revenue increased by $120 million, or 17.3%, to $812 million for the nine months ended September 30, 2024 from $692 million for the nine months ended September 30, 2023, which is attributed to continued progress in our naval power and propulsion submarine programs as we execute our existing backlog, highlighted by the Columbia Class efforts.

Previous wording

IMS’s adjusted EBITDA increased by $1 million, or 3.8%, to $27 million for the three months ended June 30, 2024 from $26 million for the three months ended June 30, 2023. The increase for the quarter is attributed to operational leverage created by the increased revenue output as well as continued program improvement on our Columbia Class submarine program. Adjusted EBITDA margin decreased 130 bps to 10.2% compared to the 11.5% realized during the three months ended June 30, 2023 primarily due to program delays and related costs realized within our land systems integration business on a foreign surveillance integration program.

Current wording

IMS’s adjusted EBITDA increased by $2 million, or 5.9%, to $36 million for the three months ended September 30, 2024 from $34 million for the three months ended September 30, 2023. The increase for the quarter is attributed to operational leverage created by the increased revenue output as well as continued program improvement on our Columbia Class submarine program. As a result of the Columbia Class performance, adjusted EBITDA margin increased 30 bps to 12.6% compared to the 12.3% realized during the three months ended September 30, 2023.

Previous wording

For the six months ended June 30, 2024, adjusted EBITDA increased by $18 million, or 47.4%, to $56 million for the six months ended June 30, 2024 from $38 million for the six months ended June 30, 2023. The increase for the period is attributed to operational leverage created by the increased revenue output as well as continued program improvement on our Columbia Class submarine program, offset in part by the program delays on our foreign surveillance program, resulting in adjusted EBITDA margin up 140 bps to 10.6% compared to the 9.2% realized during the six months ended June 30, 2023.

Current wording

For the nine months ended September 30, 2024, adjusted EBITDA increased by $20 million, or 27.8%, to $92 million for the nine months ended September 30, 2024 from $72 million for the nine months ended September 30, 2023. The increase for the period is attributed to operational leverage created by the increased revenue output as well as continued program improvement on our Columbia Class submarine program, offset in part by the program delays on our foreign surveillance program, resulting in adjusted EBITDA margin up 90 bps to 11.3% compared to the 10.4% realized during the nine months ended September 30, 2023.

Previous wording

Booking contributions increased by $96 million, or 41.9%, to $325 million for the three months ended June 30, 2024 from $229 million for the three months ended June 30, 2023. The increase for the quarter is largely attributed to new awards realized on our Columbia Class electric power and propulsion, C-UAS and short-range air defense programs.

Current wording

Booking contributions increased by $131 million, or 55.7%, to $366 million for the three months ended September 30, 2024 from $235 million for the three months ended September 30, 2023. The increase for the quarter is largely attributed to new awards realized on our Columbia Class electric power and propulsion and short-range air defense programs.